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Global supply
A taxonomy for selecting global chain strategies
supply chain strategies
Martin Christopher
Cranfield School of Management, Cranfield University, Cranfield, UK 277
Helen Peck
Defence College of Management and Technology, Cranfield University,
Shrivenham, UK, and
Denis Towill
Logistics Systems Dynamics Group, Cardiff Business School, Cardiff University,
Cardiff, UK

Abstract
Purpose – The purpose of this paper is to address the increasingly important question of supply
chain design for global operations. With the rise of off-shore sourcing and the simultaneous need for
improved responsiveness to customer demand, the choice of supply chain strategy is critical.
Design/methodology/approach – The paper draws its conclusions from case-based research
supported by survey data.
Findings – The paper provides evidence that the choice of supply chain strategy should be based
upon a careful analysis of the demand/supply characteristics of the various product/markets served by
a company. It presents the basis for a taxonomy of appropriate supply chain strategies.
Research limitations/implications – The case studies and empirical research reported in this
paper are specific to the clothing manufacturing and fashion industries and there would be benefit in
extending the research into other sectors.
Practical implications – Given the increasing trend to out-sourcing and off-shore sourcing, the
choice of supply chain strategy is of some significance and clearly impacts competitive performance.
Originality/value – Whilst there is a growing recognition of the need to match the supply chain to
the market, there is still limited research into what criteria should be utilised to aid the choice of supply
chain strategy. This paper attempts to extend our understanding of the issues.
Keywords Sourcing, Lean production, Agile production, Supply chain management
Paper type Research paper

Introduction
It is now increasingly accepted that “one size does not fit all” when it comes to
designing supply chain strategies to support a wide range of products with different
characteristics sold in a diversity of markets (Shewchuck, 1998). It has long been
recognised that manufacturing strategy should be tailored to match the required “order
winning criteria” in the market place (Hill, 1993). However, this idea of aligning the
firm’s operations with market place requirements has not always been extended to the
wider supply chain. It can be argued that sourcing strategy, operations strategy and The International Journal of Logistics
route-to-market need to be appropriate to specific product/market conditions. In his Management
Vol. 17 No. 2, 2006
seminal paper, Fisher (1997) drew on examples from a diverse range of consumer pp. 277-287
products, including food, fashion apparel and automobiles, to illustrate why different q Emerald Group Publishing Limited
0957-4093
supply chain solutions were required depending upon whether products were DOI 10.1108/09574090610689998

By definition. the introduction of “just-in-time” delivery may reduce inventory in the factory but increase it at the supplier whilst also increasing transport costs. the location of facilities and the choice of distribution channels should all be driven by the goal of enabling the marketing objectives of the organisation to be achieved. but the number of segmented supply chain strategies required? This paper provides some possible answers to these questions. the typical supply chain strategy is likely to be aimed at achieving a smooth flow at minimum cost (Harrington. But how are the right supply chain decisions to be made which will enable the defined business and marketing strategy to be enacted? How does the in-sourcing/out-sourcing option fit into the holistic scheme of things? Is there a taxonomy which executive management may use with confidence to establish not only the type. and while world trade stagnated between 2000 and 2002. supply chains would be designed from the “customer backwards” rather than the conventional approach which tends to be from the “factory outwards”. The rise of global sourcing Over the last 20 years. In the 1990s. due to the continual pressure to take out costs that sub-optimal supply chain decisions may be taken. This framework for supply chain design has been further developed by Christopher and Towill (2002) through the addition of replenishment lead-time as a critical driver of supply chain strategy. In other words. in contrast. For example. In such situations there is a danger. not companies” (Christopher. The temptation is to create supply chains which are more focused upon “efficiency” goals than “effectiveness” goals. geopolitical events moving in step with technological developments and the deregulation of trade have made global sourcing and supply a reality. has been one of the most remarkable phenomena of recent years. its imports and exports rose by 30 per cent (WTO. Today’s market place is characterised by heightened global competition often 278 against a backdrop of an excess of supply over demand.2 demand with long lifecycles. Thus. but some . Scott and Westbrook. it is argued that “supply chains compete. Since. 2003). Innovative products. 1991). In the ideal world. Indeed an early move in this direction was proposed by Kraljic (1983) when arguing that purchasing needed to be seen in the perspective of the wider supply chain.IJLM “functional” or “innovative”. apparently opening the door to the “global village”. its trade grew three times faster than that of the global economy. China has become the favoured destination for manufacturing industry of all kinds. largely due to fewer regulatory controls and significantly lower wages has prompted the mass-migration of manufacturing from the developed world to emergent economies in other regions. In fact its emergence as a force in international trade. The paradox is that supposedly low-cost off-shore sourcing strategies can end up as high-cost supply chain outcomes. The reasons behind this are often complex. 1992) this implies the existence of a climate wherein holistic SCM is possible. What might look like a cost saving to one firm could mean increased costs to the supply chain as a whole. generally have unpredictable demand with short lifecycles. The lure of cost savings. SCM demands a high level of “joined-up thinking”. The old norms of “local for local” manufacturing and sourcing have been swept away. To avoid this type of sub-optimisation. a holistic approach to supply chain management (SCM) should be adopted. after decades of isolationism. 1991. Functional products tend to have stable and predictable 17. the selection of suppliers.

The pattern of trade and demand affecting other categories of consumer products is similar to that of consumer electronics. Electronics manufacturer Sony found this to be so with its high-tech camcorders and digital cameras. high-risk new product introductions. Amongst the major suppliers . The second. shippers. particularly those identified by Fisher (1997) as innovative. efficient production of products based on proven technologies. In 2002.e. hence Sony’s decision to relocate. East-West chain strategies trade has benefited for many years from relatively low transport costs. benefits of proximity and the supply chain flexibility to cope with the demands of high-margin. With more and more manufacturers heading for China. legal and regulatory environments. resulting from distance and the almost inevitable complications involved in coordinating shipments from far-off suppliers. The reason for Sony’s decision was supply chain cost-related (Bin. 2003). it moved production of both from China to Japan. customs and delivery networks. most of the customers for the high margin innovative products are in the more developed markets of the US.seemingly obvious factors are often overlooked. In 2002. “me-too” offers. China had proved to be an excellent location for many of Sony’s less innovative competitors who focussed on the forecast-driven. through forwarders. accounting for around 3. raised questions about the longer-term viability of globe-spanning supply chains and the underlying assumptions of prevailing purchasing practices (New. Global supply due in part to the greater distances covered.2 per cent of all merchandise exports by value. this may not be the case. and less obvious cost driver is the extension in lead-times. and the risks of wasted opportunity arising from the inability to supply quickly enough when a winning product is produced. Often this requires the ability to manage across diverse cultural. Sony had managed the inherent risks of innovative new product introductions through close collaboration between itself and its suppliers throughout the new product development process. 2003). Consequently. the value of clothing exports worldwide reached $200 billion. Sony relocated its leading edge product production from China because its efficient low-cost manufacturers lacked these essential capabilities. The networks of suppliers had the capabilities to respond very rapidly to consumer demand should the product prove to be successful in the market. First there are higher transport costs. underpinned by stable oil prices. For other categories of products. less risky. For many so-called “commodity” items the lower manufacturing costs may well outweigh the higher costs of transport and the longer lead times. Western Europe and Japan are the main importers accounting for around 80 per cent of all clothing imports. Geopolitics is a factor here too. shipping prices have risen 279 sharply and seasonal shortages in freight capacity have emerged (Johnson. Japan provided a better base in terms of user market proximity. Western Europe and Japan. Added to this was the fact that while demand for consumer electronics is strong in China. before margins fall as competitors follow with cheaper. Sony found that China’s manufacturing base lacked critical “market mediation” capabilities – i. but the skills were well-established and available – at a cost – in Japan. The uncertainty in oil markets before and after the US-led invasion of Iraq in 2003. Again the US. But for its leading edge products. Companies that choose to differentiate themselves through innovation must tread the fine line between the dangers of over-optimistic forecasting with the attendant risks of remaindered stock. the technological expertise. 2001). To survive. they must be able to minimise the risk from failed products and maximise the benefits of successful innovations.

start of season ^ 10 per cent. The Table provides a simple method of ranking the flexibility of these various sources.IJLM to the EU were China. each expanded their shipments to the EU 17. In this paper. more responsive supply chains. forecast three months ahead ^ 50 per cent. Whilst the purchase cost of the garment is clearly significantly less if sourced from. China also increased its imports to the US and continued to supply more than three quarters of clothing imported to Japan (WTO. Paradoxically in this industry lead-times have if anything lengthened over the last decade or so. Thus. if the lead times are compared with the previously quoted forecast errors (say 16 weeks out) then it is clear that matching supply with demand is greatly affected by the long lead times associated with some offshore sources. and situations where the imperative is for shorter. as Table I shows (Christopher and Towill. and . 1991) forecast errors in the fashion industry related to the forecast time horizon are as follows: . colour and quantity have to be taken many months ahead of the season then the greater is the chance of error in the forecast. plus long lead times. 2002).2 by between 15 and 22 per cent in 2002. As a rule of thumb (Blackburn. Nor is the situation any better in consumer electronics (Watson. . . Turkey and Romania. Nowhere is this more true than in the apparel industry where seasons can be short and demand unpredictable. and . time has become a competitive variable. Not just time-to-market for new product introductions but time-to-respond in terms of being able to meet the needs of time-sensitive customers. Additionally. Pipeline lead-times In many markets. minus 16 weeks ^ 20 per cent. It has been suggested (Lowson. The challenge to business organisations that seek to improve their competitiveness in this sector too is to find the supply chain solution that best fits the demands of the market place. If decisions on style. The risk that is incurred through lengthened lead-times can be considerable. the European vendors perform very much better responding to pre-season changes compared to Asia. we will examine in more detail the 280 circumstances where global sourcing is advantageous. minus 26 weeks ^ 40 per cent. the Far East this comes at the expense of lack of flexibility to both order mix and volume change. This is primarily the result of global sourcing as retailers have sought out low cost sources of supply. 1994) where the equivalent rule of thumb is: . 2003). say. This advantage also carries over into flexibility of supply after the season has started. 2001) that for the UK garment retail industry the move to offshore sourcing can quadruple the time from order to delivery in some cases thus dramatically increasing supply chain risk. Here we have computed integrated responsiveness metrics from survey data from the clothing industry obtained by Lowson (2001). forecast one month ahead ^ 5 per cent. So a business operating in such a scenario and supplied via a single delivery pipeline can expect to have many stock-outs . forecast two months ahead ^ 20 per cent.

and in many cases there is a requirement for a “hybrid” lean/agile strategy to be adopted (Christopher and Towill.30 0. Later this idea of manufacturing flexibility was extended into the wider business context (Nagel and Dove. Asia 55 0.17 Table I.48 0.16 0. A key characteristic of an agile organisation is flexibility. it is our contention that the issue is not “Lean versus Agile” rather it is the judicious selection and integration of appropriate aspects of these paradigms appropriate to the particular supply chain strategy.23 0.. Hence. In some cases. it is about being demand-driven rather than forecast-driven.34 0. It has been suggested (Christopher.11 0. It is about the ability to match supply and demand in turbulent and unpredictable markets. The 281 focus of lean thinking has been on the reduction or elimination of waste (muda).57 0.alternating with huge surpluses.15 0.46 Central America 38 0. Indeed.19 0.40 0. mind-sets.49 0.42 0. 2000) that lean concepts work well where demand is relatively stable and hence predictable and where variety is low.35 change and mix change according to geographic Source: Authors based on European survey results undertaken by Lowson (2001) region . and seasonal sales at knock down prices.06 Estimate of vendor Africa 39 0. The origins of the lean approach can be traced to the Toyota Production System with its focus on the efficient use of resources through level scheduling (Ohno. 1988). In reality the two approaches can complement each other. a different approach is called for. The idea of “lean thinking” has been expounded by Womack and Jones (1996) amongst others. 1999) One such “hybrid” solution is to utilise lean principles when designing supply chains for predictable standard products and agile principles for unpredictable or “special” products.29 0. Base demand is more predictable and less risky so lean Computed response metric (higher is better) Before start of season After start of season Order-to-delivery Volume Order Volume Order Sourcing region lead time (weeks) change mix change mix North America 35 0.46 0. Agility is concerned primarily with responsiveness.26 European 12 0.17 0. chain strategies Lean and agile supply chains One of the more interesting debates in recent years concerning supply chain strategy has centred around the relative merits of “lean” and “agile” philosophies. the two ideas of lean and agile can be brought together as a hybrid “leagile” solution (Naylor et al. All these Global supply factors heavily erode profit margins. In essence. This is the concept of “agility”.39 0. Agility is a business-wide capability that embraces organisational structures. the origins of agility as a business concept lie in flexible manufacturing systems.37 0. in particular. logistics processes and.15 Non-EU 21 0. Conversely in those contexts where demand is volatile and the customer requirement for variety is high.21 0.24 0. 1991) and the concept of agility as a supply chain philosophy was born.28 0. 2000).21 responsiveness to volume Other 34 0. Or again it may be that total demand for a product can be separated as “base” and “surge” demand.25 0.

2000). Because predictability and product type will tend to be related. as we have observed. 2001). replenishment lead-times (short or long). 2002). it is possible to simplify the taxonomy into just two dimensions: predictability and replenishment lead-times. (Stratton and Roy Warburton. . What makes a product “special” in our sense is probably that it is either low volume with erratic demand or it is a product with a probable short life cycle or. In 1999. So pipelines should not be fixed for all times. Childerhouse. and . What is needed is a continuous assessment of the product range and market characteristics so that changing scenarios may be identified. 1997. Hence. Griffin manufacturing pragmatic Pipeline characteristics solution Pipeline purpose Supplier Product Demand Lead time Table II. we are suggesting a simple three-dimensional classification appropriate for global supply chains. heavily dependent upon supply lead times. customisation. demand (stable or volatile). “Standard” products on the other hand will tend to be more stable in demand with longer life cycles with no. High volume lean pipeline Baseline demand Out-sourced Standard Stable Long Pragmatic multiple Top-up agile pipeline Surge demand In-house Standard Volatile Short pipeline solution adopted Innovative goods agile pipeline Surge demand In-house Special Volatile Short by Griffin Manufacturing Co Source: Authors based on Stratton and Roy Warburton (2001) . products (standard or special).IJLM principles can be applied. globalisation is tending to extend those lead-times. and seeks an optimal blend of in-sourcing and out-sourcing in meeting both baseline and surge demands. and 20 per cent production 282 in the USA. Whilst the characterisation of products as either “special” or “standard” may be an over-simplification it is a useful high-level distinction. Against these product/market characteristics will be a number of alternative options for pipeline design. In practice. we believe that lead-time must be included in any useful taxonomy. the resulting balance worked out at 80 per cent production in Honduras.2 example of this separation of base and surge demand is the multiple pipeline solution implemented by the Griffin Manufacturing Co. Because of the critical impact that replenishment lead-times have on responsiveness to demand and because. a product with a high level of customisation. using agile approaches to cope with surge demand. It is also likely that products may well require different kinds of pipeline according to their position within the product life cycle (Christopher and Towill. or limited. possibly.e. Thus. there will be eight (2 £ 2 £ 2) theoretical pipeline types. An 17. A taxonomy for pipeline selection A number of classification schemes have been proposed in the literature to guide the choice of supply chain strategy (Fisher. i. Their approach is shown in Table II. The dimensions and their binary gradations are: . So it is not surprising that lead times form a major part of our supply chain taxonomy. standard products will be more predictable (at least over longer periods). some of these are either unlikely to be encountered or are non-viable situations.

How demand/supply Predictable Unpredictable characteristics determine pipeline selection strategy Demand Characteristics Supply demand characteristics Resulting pipelines Short lead time þ predictable demand Lean continuous replenishment Short lead time þ unpredictable demand Agile quick response Long lead time þ predictable demand Lean. If this elapsed time is measured in months rather than days then that product could be regarded as having a long re-supply lead time. This is how companies like Procter & Gamble manages their supply chain for volume products to Wal-Mart in the USA. the matrix suggests that there might be four possible generic supply chain strategies. hence measures such as the coefficient of variation (s=x) could be used to position products on that axis.Figure 1 shows the resulting 2 £ 2 matrix and Table III defines the four suggested Global supply pipeline solutions that emerge from the classification. they can rapidly replenish individual stores through a process of vendor managed inventory. This is the classic “postponement” Long LEAN LEAG ILE Lead PLAN AND POSTPONEMENT Supply Characteristics EXECUTE Time Short LEAN AGILE Lead CONTINUOUS QUICK REPLENISHMENT RESPONSE Time Figure 1. As outlined above. In those situations where demand is predictable and replenishment lead-times are short then a “continuous replenishment” strategy may be appropriate. had to be sourced or manufactured. Effectively this is measuring the time it would take the system to respond to 283 an increase in demand if materials. etc. Making use of point-of-sale data. we show the demand characteristics in terms of “predictability”. chain strategies On the horizontal axis of Figure 1. planning and execution Table III. Long lead time þ unpredictable demand Leagile production/logistics postponement Relating pipeline types to supply/demand Source: Authors characteristics . At the other extreme (unpredictable demand and long lead-times) the ideal solution is to carry strategic inventory in some generic form and assemble/configure/distribute as required when actual demand is encountered. This is likely to be determined by the variability of demand. The vertical axis reflects the replenishment lead times for the same product.

but for a standard product it may be better to postpone distribution (Pagh and Cooper. then agile solutions will be required based upon rapid response. for a special product we may postpone manufacture. Pakistan and Indonesia. 1998). then to more open sourcing policies. Finally. . at least on paper. had long been a textbook example of a successful extended enterprise. This change in strategy was forced upon it by competitive pressures. A good example of agility is the case of Zara. Hewlett Packard follow this strategy for their range of DeskJet printers. It overlooked the need to secure transport capacity and textile import quotas ahead of season. discovering too late that it lacked the essential logistics know-how needed to support its new sourcing strategy. then there is opportunity for the 284 pursuit of “lean” type strategies.50 compared to $1. Woolworths sell a million plastic Christmas trees each year. For decades it had been an industry leader in collaborative working with its network of dedicated local suppliers. e. The potential for cost reduction through this means was dramatic. Finally. They 17. However. They do this by using cross-functional teams to manage the end-to-end process and by using numerous small workshops in Spain and Portugal to give them a high level of flexibility.2 build a semi-finished product at their central facilities in North America and then ship it to four regional centres around the world which are run for them by third-party logistics service providers. the Spanish fashion garment manufacturer and retailer. particularly the continuing downward pressure on price. in the “postponement” cell of Figure 1. to underline the importance of choosing the right supply chain strategy depending upon the supply and demand characteristics encountered.IJLM concept. They can move products into their stores across Europe in as little as three to four weeks after they have been designed.g. An example is provided by the UK retailer Woolworths. Within each cell of the matrix. they see little risk in this strategy given their prior experience of demand for the product. To maintain profitability. M&S were forced to seek a step change in cost-reduction. In the 1990s. the tactics adopted may also be influenced by whether the product is “standard” or “special”. and their “standard” stable demand items. If lead-times are long but demand is predictable. make or source ahead of demand in the most efficient way. the product is finally configured and delivered when actual customer orders are received.20 an hour in Morocco and less than 50 cents an hour in China. This case study suggests that the company may have initially failed to recognise the need to adopt different supply chain strategies for their “special” more fashion-oriented products. For example. M&S soon discovered that this simplistic calculation failed to take into account the hidden costs of overseas sourcing. Marks & Spencer (M&S). Selecting global pipelines – an apparel industry case study M&S. we briefly describe the dilemma facing the British retailer. particularly the risks relating to significantly extended replenishment lead-times. According to the British Apparel and Textile Confederation. a major British retailer. it abandoned its UK sourcing strategy. the average hourly labour cost for clothing manufacturers in the UK in 2000 was $9. They source these mainly from China and have to place their order over six months ahead of the season. first by requiring its established suppliers to relocate production overseas to low cost manufacturing centres. when demand is unpredictable but lead-times are short. At these centres.

Whereas M&S’s dedicated domestic suppliers had been able to re-supply relatively Global supply rapidly. while 50 % of merchandise is core and therefore bought with long lead-times. We have now discontinued this practice.e. though it retains close relationships with its leading suppliers. continue to be sourced from low cost centres around the globe. with its top 15 suppliers accounting for 92 per cent of its clothing business. i. In spring 2004. this had a negative impact on profitability. how they should be transported and whether it is a one-off buy or a continuing supply. Part of the problem for M&S was that their definition of cost was too narrow. such as men’s shirts and socks. but cannot overcome poor design and buying decisions which fail to introduce attractive products in the first place. reliance on forecasts increased. 2004). The new supply chain strategy was first outlined in M&S’s Interim Report of September 2002 when the Chairman and Chief Executive wrote: Lack of flexibility has been the major weakness within our supply chain. For Spring 2001. If these forecasts were wrong – and they often were – then the result was either over-stocking or a stock-out. buyers had to forecast styles. with overseas sourcing orders typically had to be placed many months ahead chain strategies of requirement. colours and volumes well ahead of the season. In the event. . and a further 10 % will be bought in the season itself in response to emerging fashion trends. for which demand is expected to be predictable and continuous. These issues increasingly determine where products should be sourced. not least because they had adopted a “one size fits all” supply chain strategy for their clothing products. high margin autograph range. but not for “innovative” or “special” ranges such as M&S’s exclusive short-life cycle. designer-led. the purchase cost rather than the total cost of ownership. Inevitably. Either way. It could be argued that the strategy would have been. The problem emphasises the point that a responsive supply chain can minimise the risks associated with unappealing products. M&S is acknowledged to be getting better at managing sourcing and replenishment issues. what was intended to be a low cost supply chain solution turned out to be high cost. It is now acknowledged amongst the top management team at M&S that a much more differentiated supply chain strategy for garments is essential. Indeed one of the major causes of the M&S profit slump in the late 1990s was the lack of interest shown by 285 consumers in the M&S clothing range where the buyers had seriously misjudged fashion trends. In the past. The emphasis is on quick response for lines where demand is difficult to predict. Many of these are UK-owned companies operating overseas. we will commit to approximately 40 % of merchandise much closer to the season. though it continues to struggle to align its standard product offer with the evolving tastes in the market (Warner. Degree of predictability of demand and the length of the season are factored into sourcing decisions. “Journey time” has become a principal deciding factor in product sourcing decisions. in up and coming Asian countries such as Cambodia as well as some of the new EU Accession States. 80 per cent of clothing sourced by M&S was manufactured overseas. and indeed is appropriate for high volume “standard” items. Standard items. Thus. These items are manufactured in locations with a journey time of less than four days. we bought stock to cover 100 % of budgeted sales well in advance of the season.

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